Demand for rough diamonds improved significantly in January, leaving many to wonder if the sudden upturn is sustainable. Manufacturers demanded more rough than was available as miners De Beers and ALROSA limited their respective supplies amid continued uncertainty in consumer demand.
De Beers sold $540 million of rough diamonds in January at the first of its 10 sales cycles, which include the sight, auction sales and supply to beneficiation and government partners. That compares with $248 million recorded in December, the last sales cycle for 2015, and versus approximately $486 million estimated by Rapaport News for the sight in January last year.
“Overall a better than expected [De Beers sales] number as the year started with shortages of rough,” wrote Des Kilalea, an analyst at RBC Capital Markets. “The issue from here will be whether the enthusiasm in the rough market will be sustained given slow growth in China and a strong U.S. dollar, as well as still tight credit conditions.”
For the first time in many months, De Beers boxes sold at a premium on the secondary market after the sight. ALROSA, it was reported, also managed to sell all its goods in January, and prices on the auction circuit soared.
But while sightholders were quick to point out that the market mood is currently “much more positive,” it is important that stakeholders are aware of the factors that have underpinned the sudden turnaround in rough diamond demand.
Sightholders acknowledge there is a bit more liquidity in the market – at least for some of those who survived 2015. After all, manufacturers have sold some polished around the Christmas and Chinese New Year seasons and collected payment while laying out very little for rough purchases in the past six months.
However, liquidity is still relatively tight particularly as European banks have reduced their credit to the industry. Instead, industry players explained the improvement in rough demand was driven by a lack of goods on the market. There is a shortage of polished diamonds, particularly for better-quality stones below 2 carats following a 30 to 50 percent slump in manufacturing – and rough buying – during 2015.
Then again, there was good demand for rough in most categories in January, including very small goods – stars and melee – and for larger sizes where there are no notable shortages. That would suggest demand is also factory-driven, which means that manufacturers simply need rough to keep their factories churning as they cannot afford to lose any more workers than they did last year.
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Sightholders also noted De Beers rough held better value in January after the company reduced prices by an estimated 7 to 10 percent. Many had anticipated the correction and held off purchases in December. Now is also as good a time as any to buy, as further corrections are not anticipated in the coming months.
Some argue that sightholders would have bought the goods even if prices remained stable – as they did at the ALROSA sale. Significantly, Andrey Zharkov, ALROSA’s president, told Interfax, “We left prices unchanged because we see no reasons right now for them to fall.” The Russian miner reportedly extended its sale for an extra week in light of the strong demand and was set to sell about $500 million worth during the monthly cycle – double its original plan, according to Bloomberg.
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“Sightholders also noted De Beers rough held better value in January after the company reduced prices by an estimated 7 to 10 percent.”
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